MCM Outlook GLOBAL ECOMMERCE

GLOBAL ECOMMERCE

Global Ecommerce on the Rise as Options for Addressing Barriers Increase By Mike O’Brien

W

hile presenting a number of risks and some significant barriers to entry, global ecommerce represents a massive opportunity and more retailers are jumping onboard as solutions for addressing cross-border business become more readily available. According to eMarketer, worldwide B2C ecommerce sales in 2015 are expected to rise 15.6% to $1.7 trillion. Jamison Shelton, owner and principal of Global Nuance Consulting, said there’s been a “shift in perception” from the U.S. as the dominant market in the center of the ecommerce world. In fact, eMarketer has the Asia-Pacific region surpassing North America as the number-one B2C ecommerce market globally this year, with 33.4% vs. 31.7% of total sales. “The biggest thing we’re seeing is more of an acceptance of retailers competing globally, and it’s becoming more the norm,” Shelton said. “For a long time, domestic retail-

ers felt since this was their biggest market, nothing else made sense. But now they’re finding out when they look at traffic stats from their U.S. ecommerce site that people from all over world are coming there, even if they’re not actively marketing it. So now it’s become a matter of figuring out the best way to support those customers.” The rise of cross-border solution specialists shows how hot global ecommerce is becoming, Shelton said. According to the results of MCM Outlook 2015, which was fielded between Feb. 17 and March 15 with 175 qualified respondents, 27.7% of merchants are using a third-party service provider to market to global consumers, and 11.6% are using a third-party international shipping service. The fact that there has been a flurry of acquisition activity in the space — with Pitney Bowes to acquire Borderfree, UPS snapping up i-parcel and FedEx buying Bongo — is another indicator that global is hot, he said.

How are you using the marketplaces (Amazon, eBay, Rakuten, etc.)? To expand our U.S. audience

38.0%

To clear out inventory

To expand our global audience

16.0%

14.0%

To test new inventory 8.0% 0 5 10 15 20 25 30 35 40

2

Source: MCM Outlook 2015

We only sell in marketplaces

20.0%

“These companies are coming in with easy-button solutions to support international customers, showing there’s a real need in the industry,” Shelton said. “U.S. retailers are already maxed out, doing everything they can to compete here. When you try to add on functionality to support international ecommerce, you can run up against a lack of resources. Some of these providers have been around for a while, but are now starting to take off because of the increased demand and activity.” Carl Miller, founder and managing director of the Global Retail Insights Network (GRIN), said retailers need to consider the regional pain points of consumers when considering which markets to enter. “Look at how AliExpress does better in Brazil than in North America,” he said, referring to Alibaba’s marketplace of mostly small Chinese merchants. “It’s because value is the biggest concern for those consumers. It’s one reason why for North American and European retailers there’s so much interest in Asia, because of an emerging middle class that is very brand aware. I like to think about ecommerce growth in these markets as being driven by a better understanding of what the local consumer requirements are, and how retailers are hitting that space at the right time.” After the economic downturn in 2008, retailers went in one of two directions, according to Zia Daniell Wigder, research director of global ecommerce for Forrester: They either focused exclusively on their domestic business, or feared having all their eggs in one basket and diversified with international trade. “That second option has started to ac-

2.8% Global selling 9.8%

GLOBAL ECOMMERCE

4.6% We do not use Amazon

59.0% 35.0%

celerate as the recovery continues,” Wigder said. “It’s been a combination of that, along with the arrival of more streamlined market entry options such as marketplaces and service providers, making it easier to embrace cross border without requiring the same resources as a fully localized operation would.” The Hot Markets Canada is the most popular country outside the U.S. for cross-border selling — 58.5% of merchants do, according to MCM Outlook 2015. About 30% said they sell into Australia and Mexico. Marshall Porter, senior vice president and general manager of Gilt, said from his perspective that China and South Korea were among the hottest markets for global ecommerce. Latin America is getting hot, he said, while the Middle East is growing but off a much smaller base. “The activity in Korea has been driven in part by the government, which has lowered duties and tariffs on things like personal products, which is an implicit endorsement by officials of cross-border trade,” Porter said. Similarly, China opening four freetrade zones — Shanghai in 2013, and Guangdong, Tianjin and Fujian this year — has been a boon for ecommerce there, Porter said, making it easier for foreign merchants to do business. “In effect, the Chinese government is saying consumers there are already going to businesses in New York, Hong Kong or Tokyo, and we’re not getting any revenue, so they’re encouraging them to do more cross-border buying from businesses (in the FTZ). It’s been a big shift and will continue to be.” Those two markets are “growth prone” if merchants take the right steps to take advantage of them, Porter said. Shelton said he has seen “under-representation” of U.S.-based merchants pursuing opportunities in Canada, the UK and Australia/New Zealand, the primary offshore English-speaking markets. “If you look at the major U.S. online sellers, you don’t see localized domains (in those countries),” he said. “They may ship

10

20

30

40

50

60

Which company is your primary international parcel carrier?

2015

FedEx UPS

17.8%

U.S. Postal Service

16.4%

We use a third-party international shipping service provider

5.8% DHL 0

2014

19.2% 18.2%

8.2% 5

25.6%

18.2%

13.7%

12.4%

10

15

20

25

30

Source: MCM Outlook 2015

0

How do delivery expectations vary from country to country? “If you talk to a Chinese customer, they exTina Naetscher, director of international busipect deliveries in two or three days at most,” ness for Nasty Gal, said delivery expectations said Marshall Porter, senior vice president and vary from country to country. general manager, Gilt. “But that’s not logistically “Obviously, retailers in the local market set possible from the U.S. So the value proposition, the bar high to avoid U.S. brands getting in there How do you charge customers for INTERNATIONAL whether it’s cost or uniqueness has to justify the tariffs? and having a chance.,” she said. “Shipping time shipping, handling, taxes and longer shipping time vs. domestic alternatives.” is definitely the toughest area to compete in, so That uniqueness has to be strong or desirable youand need We make the customer responsible for paying customs, duties taxesto figure out your unique 45.1%selling propoenough for far-flung consumers to swallow a sition. You can’t compete at that level unless you 7-14-day shipping time. “In Korea, the concept of have a DC in the country and separate inventory, We don’t ship internationally 28.2%can offer same-day or next-day delivery.” retailer after-service goes above and beyond the and call of standing behind their product, several levDomestic sellers can be hard to beat: She said els Flat beyond U.S. retailers,” he said. “Being aware Australian online retailer The Iconic’s strength in fee 22.5% of that kind of thing makes a big difference to the delivery is its unique selling proposition, making customer.” it tough for outsiders. We charge the customer customs, duties and taxes

22.5%

from their .com operation, but it’s not being Other 7.0% specialized, there isn’t dedicated marketing or teams building those individual mar0 20 kets. There’s still a lot10 of room for growth and maturity for U.S. retailers to expand into key English-speaking markets.” Australia in particular has gone out of its way to encourage cross-border ecommerce, Shelton said, by setting its de minimis value — the threshold below which there are no import duties — at a very high rate of $1,000. By comparison, the de minimis value is $20 in Canada — one of the lowest in the world — and $200 in the U.S. Germany, France and the Nordic countries “are also big-opportunity markets people tend to forget about,” Shelton said. 3

Out of the so-called BRIC countries — Brazil, Russia, India and China — Brazil and China are the hottest right now, ac40 50 cording30 to David Wachter, division president of urban apparel brand Jimmy Jazz. “Unfortunately, high fraud in Russia has detoured us from focusing in on that market,” Wachter said. Miller of GRIN agreed, saying BRIC could be shortened these days to “BC,” or even just “C.” “Political and economic conditions in Russia, and the difficulties of delivering packages in India, make them more difficult to deal with,” he said. As for Brazil, Miller said it’s a highly sought-after prize but very difficult to crack in terms of infrastructure, prohibi-

We use a third-party international shipping service provider

5.8% DHL 0

8.2% 5

13.7%

12.4%

10

15

20

25

GLOBAL ECOMMERCE 30

How do you charge customers for INTERNATIONAL shipping, handling, taxes and tariffs? We make the customer responsible for paying customs, duties and taxes

We don’t ship internationally

22.5%

We charge the customer customs, duties and taxes

22.5%

0

7.0%

10

20

30

40

50

Source: MCM Outlook 2015

28.2%

Flat fee

Other

45.1%

How do you handle taxes, tariffs and international fees? “We ship delivery duty unpaid (DDU), which is a huge customer headache,” said Tina Naetscher, director, international business, for Nasty Gal. “We’re working to change, country by country, to incorporate it into the product price and have a fully landed cost.” She said the idea is to replicate the local experience and make it seamless to the customer, no matter where they are. “We’re competing with local markets and marketplaces, so why burden them with fees they don’t normally encounter?” Naetscher said. Nasty Gal’s global ecommerce provider didn’t

solve the issue with duties and taxes calculated at checkout. “A 15% commission isn’t economical for us; we can’t cut it out of our gross margin,” she said. Naester also said putting the cost of duties, tariffs and other cross-border costs into the product price is something brick-and-mortar stores have done for years when they open in another country. “A 15-year-old girl doesn’t know what duties and taxes mean, so we’ll remove it completely and make it as smooth as possible in terms of her customer experience,” she said.

tive regulations and exorbitant duties and fees, all of which discourage imports. “For U.S. retailers, delivery duty paid (DDP) options aren’t there, so they send products to Brazil as unpaid,” he said. “If a customer decides not to pay, the retailer is on the hook for the costs, according to the Brazilian government, and the package isn’t released to the customer until they do.” In addition to Korea, the Southeast Asia nexus of Indonesia, Malaysia, Singapore and Hong Kong represent a great opportunity for merchants “who can get lost in China, because it’s too big to navigate,” Miller said. “These markets have become a bright spot because they’re more man-

ageable and represent a sizable population with Internet access flowing and a desire for Western brands.” Dealing With a Strong Dollar The U.S. dollar has never been so popular. It is more valuable than it’s been in the last six years, prompting many industry experts to declare 2015 “The year of the dollar.” Between improving economic activities and a better labor market, the Federal Reserve is talking about increasing overnight interest rates for the first time in six years, with some predicting the Fed will take action as early as this summer by raising it from .25% to 1%. 4

While the U.S. economy is rebounding, those in Europe and Asia are struggling with slow growth and low prices. As industry observers say it will take these regions a while longer to catch up with the U.S. economy, the dollar could retain its popularity into 2016. This currency differential is having a serious impact on retailers who do business overseas. For instance, Gap Inc. reported a 3% decrease in first quarter 2015 revenue, estimating that the translation of foreign sales into U.S. dollars pushed sales down by about $90 million, driven largely by the weakening Japanese yen and Canadian dollar. Macy’s also put some of the blame for a Q1 earnings and revenue miss on the strong dollar, saying it kept foreign tourists from buying more goods at their stores in key destination markets like Manhattan, Las Vegas, San Francisco and Chicago. “As the dollar has strengthened, anyone shopping from outside the U.S. can see items that are 15% to 20% more expensive,” said Porter of Gilt. “So something that cost $100 in Canada is now $120. The heaviest impact has been in countries like Canada, Australia and Europe, while those least affected are countries effectively pegged to the dollar including Hong Kong, China, Korea and parts of the Middle East.” To mitigate currency risks in market conditions like this, ecommerce merchants can enter forward contracts, allowing them to lock in an exchange rate for a future dated transaction. For example, if seller A knows they’ll have 250,000 euros to bring back to the U.S. in six months, they can lock in an exchange rate now and know how many dollars will arrive. Considerations for Entering New Markets Tina Naetscher, director of international business for young women’s fashion seller Nasty Gal, said her company looks at factors like demographics, Internet penetration, economic growth rates and price sensitivity when considering which market to enter. The country’s sense of style and fashion are also important criteria, she

GLOBAL ECOMMERCE

Source: MCM Outlook 2015

said, because its apparel may not be culturally acceptable in some locations. How Jimmy Jazz Grows its Global Ecommerce Business “Cross-border means an additional cost for the customer,” Naetscher said. David Wachter, division president of urban apparel brand Jimmy Jazz, talked How are you using the marketplaces “So we calculate projected volume against with Multichannel Merchant about his company’s global ecommerce business: (Amazon, eBay, Rakuten, etc.)? price sensitivity. For instance, one country might be a bigger market but be price MCM: How is global sistent with what a new market demands?” It’s as To expand our 38.0% growth sensitive, soU.S. theaudience scale makes sense. Or it ecommerce fueling simple as that. could be a smaller one like Hong Kong, for Jimmy Jazz? MCM: What do you see as the primary barriers where customers are willing to pay more Wachter: In the next five years, to entry in cross-border, and how do you address To clear out inventory for American goods. So tailor your web- 20.0% the majority of our growth will come from inter- them? site to a certain country, and optimize your national. Key drivers will be a dedicated focus on Wachter: The biggest barrier is that several of our logistics where there’s high demand. These global, with resources focused just on that. main brands won’t allow us to enter foreign marare each company needs to do MCM: What are the hotter global markets for you? kets, which can be a challenge from an internaWe calculations only sell in marketplaces 16.0% for themselves.” Wachter: Western Europe, China, Canada, Aus- tional growth perspective. Localization goes way beyond a direct tralia and New Zealand, based on their desire for MCM: What steps have you taken to enable global translation web and email content into trendy footwear and urban apparel, and the fact ecommerce? To expand our of global audience 14.0% the native language. Idioms and collothat we sell many American brands. Wachter: We’ve integrated an international platquialisms need to be considered as well MCM: What are your prime criteria when consid- form, we’re using a shipping partner and we’ve — people in Brussels or Hong Kong aren’t ering expanding into a new market? executed international marketing initiatives, inTo test new inventory 8.0% going to understand the term “drinking Wachter: We ask ourselves: “Is our offering con- cluding the use of marketplaces. the Kool Aid,” Naetscher said. And king 0 5 10 15 or queen size mattress sizes mean nothing20 25 30 35 40 in other parts of the world, nor do some many, and Japanese consumers using local tween us and the customer,” she said. “And U.S. apparel sizes. Shipping expectations convenience stores — and paying by COD. in Germany, less than 20% of consumers also vary greatly, with pickup “hotspots” “There, the logistics carrier takes the have a credit card, so you can’t just offer (temporary post boxes) popular in Ger- risk for us — there’s no transaction be- that as a payment method. There are a ton of different payment methods across countries, so you need to figure out which What delivery options do you offer your customers? are relevant. These are different concepts and difficult to implement, but if you want Next-day 71.0% to do international right you need to consider all of it. It’s risky and scary for U.S. companies, so it make sense to have a partTwo-day 71.0% ner to help you assess the risks, benefits and potential market share you can gain.” Porter of Gilt agreed that merchants Three-day 68.1% need to address customer needs, desires and expectations holistically in order to International 52.2% succeed across borders. “At the end of the day you’re trying to solve for the customer experience in each Same-day 15.9% market,” he said. “For us, it all goes back to the five pillars of customer experience: Time of day, consumer taste, logistics, loBuy online 15.9% calization and payments. If I can solve for pickup in store all of them, I’m in really good shape; if I’m missing one, it’s a real flaw I need to look Ship to store 14.5% at. Not addressing the entire ecommerce experience and localizing based on cus0 10 20 30 40 50 60 70 80 tomer needs puts you at a disadvantage.” ■ 5